Chart of the week: US durable goods orders continue to trend up

Summary: Signs that the US economy will remain weak in H2 2013 are multiplying

What the chart shows: The chart shows the level of orders for US for and shipments of durable goods (ie, manufactured goods intended to last for some years) excluding defence and transport

Why is the chart important: The Federal Reserve has made it clear that it intends to start the process of tapering – reducing – its quantitative easing sometime this fall – most likely in September. This is a sign that the Fed believes that the US economy has now gained enough traction. While most likely a correct assumption, there are also an increasing number of signs that growth during the second half of 2013 will remain below trend (estimated at 2-2½%). One of these is the weakness in durable goods orders, even when excluding the volatile defence and transport data. Both orders and shipments (the data used for GDP calculations is based on shipments, not orders) are barely above their levels when the Great Recession began. This confirms other data, including business surveys, which point to weak, although still positive, corporate activity – and hence output growth.

Should we abolish prisons?

Imprisonment is the archetypal restriction on liberty, the paradigm case. Liberty is such an important constituent of individuals' lives that we need exceedingly powerful reasons to throw people in prisons, even if all they did was restrict liberty, like the village in the TV series The Prisoner. But it's increasingly obvious that prisoners are not just unfree, but systematically brutalised in the most shocking ways, as illustrated in this barnstorming call to arms from Christopher Glazek in nplusone magazine:

America’s prison system is a moral catastrophe. The eerie sense of security that prevails on the streets of lower Manhattan obscures, and depends upon, a system of state-sponsored suffering as vicious and widespread as any in human history. Dismantling the system of American gulags, and holding accountable those responsible for their operation, presents the most urgent humanitarian imperative of our time.

The numbers, on prison rape particularly, are truly disturbing:

In January, prodded in part by outrage over a series of articles in the New York Review of Books, the Justice Department finally released an estimate of the prevalence of sexual abuse in penitentiaries. The reliance on filed complaints appeared to understate the problem. For 2008, for example, the government had previously tallied 935 confirmed instances of sexual abuse. After asking around, and performing some calculations, the Justice Department came up with a new number: 216,000. That’s 216,000 victims, not instances. These victims are often assaulted multiple times over the course of the year. The Justice Department now seems to be saying that prison rape accounted for the majority of all rapes committed in the US in 2008, likely making the United States the first country in the history of the world to count more rapes for men than for women.

It is a radical piece, arguing for the complete abolition of prisons:

If, in the popular imagination, the primary purpose of prisons is to keep us safe from (the vanishingly small number of) people like Charles Manson, then we should simply kill Charles Manson. Prison abolitionists should be ready to advocate a massive expansion of the death penalty if that’s what it takes to move the discussion forward. A prisonless society where murderers were systematically executed and rapists were automatically castrated wouldn’t be the most humane society imaginable, but it would be light-years ahead of the status quo. (Interestingly, unlike rape, homicide has one of the lowest recidivism rates of any crime—you can only murder your wife once—suggesting that death row inmates may pose less of a security risk than other categories of offenders.)

Obviously his article is focused on the USA, and uses US statistics—typically the UK system is seen as far less brutal, perhaps because we do not have the deep-seated racial angle seen in the US, and/or because our drug laws are enforced in a slightly less draconian manner. Having said that, according to the Howard League for Penal Reform's new Commission on Sex in Prison the data isn't widely available to make that sort of judgement.

But even if the UK is much better than the US, and even if we don't want to go the whole way to abolishing prisons, the matter is clearly of huge significance, but at the same time bizarrely underreported by most sources, despite the fact that around the world millions of people are in prison (e.g. in the USA, the prison population is bigger than any city except New York, Los Angeles or Chicago). Surely there must be a better way to deal with crime than forcing 15-year old petty thieves together with violent gangs who repeatedly rape them until they kill themselves?

Led by Donkeys

By 2014, the Financial Ombudsman Service is expected to have grown its headcount 20 times since it was inaugurated 10 years ago with 200-300 people. The FOS is merely responding to the level of complaints and is not to blame. The chief executives of our financial institutions, notably the banks, are. Their leadership is reminiscent of that by our generals in WW1. It is a strange way to celebrate that centenary.

In 1914, Britain was a, maybe the, global military power although Germany, since Bismark, had developed superior land forces. Nevertheless, complacency was rife, Britain ruled the empire and the war would be over by Christmas. In the event it lasted four years and needed US intervention, principally because our generals refused to recognise, still less learn from, their mistakes.

Today the City is a, maybe the, leading global financial centre, although New York has developed strongly.The battlefield now is the financial services marketplace.

In any trade and industry, consumer complaints are an important performance measure. Most companies try to ensure that consumer experience is positive, complaints are few and those that do arise, are dealt with by the companies themselves.

In the year to March 2013, the FOS received over 2 million initial enquiries and complaints from consumers of which half a million turned into formal disputes, an increase of 92% on the previous year. Sixty-two per cent of those were with just four banking groups. On average, FOS found for the consumer on about 50% of occasions, and just 20% for building societies. For the four large banks, however, they found for the consumer 80% of the time.

Do these four CEOs even recognise, still less learn from, these mistakes? It would appear not.  The causes of the complaints may be some years back but that is not the point: it would be quicker, cheaper and better business to resolve today’s complaints internally today. Marketing academics have long established that consumers whose complaints are well handled become more loyal whereas those who do not receive satisfaction become more dissident.

Compare FOS with the Advertising Standards Authority, not a direct match of course, but relevant. According to the 2012 Report, across all consumer markets the ASA only received 32,000 complaints about 19,000 advertisements and promotions, 94% fewer than the FOS. Bear in mind that these are direct, not filtered by the brand companies dealing with any themselves.  Of these only 11.5% were decided in favour of the consumer, compared with 50% on financial marketing and 80% against the big four banks.

On three times (101,000) the occasions, the ASA was spending its time helping the advertisers and promoters prevent complaints. FOS has no wish to bash banks and would much rather be helping them to install best practice in dealing with complaints and, better still, helping banks screen their new offers to ensure they do not give rise to legitimate complaints in the first place.

Unfortunately, like WW1 generals, the four big bank CEOs seem reluctant to learn anything.

In praise of supermarkets

There's a certain sector of the chatterati that likes to slag off supermarkets. It's quite appalling how they ship food all over the place, how it's all the same bringly good quality. They set up out of town, the nasties, and thus drain the life out of the high street. We should all go back to patronising our local butcher and baker and sear never to have anything to do with a corporate behemoth ever again.

What these people don't seem to grasp is that there's a reason that we have supermarkets. And no, it's not because we all save time by going shopping in great big lumps rather than continually. Rather, it's because only in such a large and capital rich system can we have an efficient logisitics chain. And it's that logistics chain which is the real value to us all:

It hoped foreign supermarkets like Tesco and Walmart would come in and revolutionise India's backward agricultural sector. Forty per cent of all Indian produce rots on clunky bullock carts and rough baked roads before reaching the market. When they arrive, farmers get a tiny fraction on the retail price as as they pass through at least five agents, each taking their cut. Of the eighty rupees per kilo they were selling for last week, the farmer's share was just eight. India needs new smooth roads, cold-chain storage and modern transport logistics to replace sweaty bullock carts, and direct sales from farmer to retailer to stabilise prices, increase farm incomes and reduce food inflation - one of the country's most politically sensitive issues.

There have been other reports which make a very similar point. In the poor world, and one of the reasons these places are poor is because of this lack, some 50% of food rots somewhere between field and plate. In the rich world there is also waste, yes, but it's more that we consumers buy too much which we then don't eat. And let's be honest about it, having too much food in our fridges is a very much better outcome than having not enough food in the house. And that is the difference between having the supermarkets and not having them. Those logistics chains might mean that we ourselves are so inundated with food that we waste some portion of it. But that's a much better result than not having enough food to be able to waste it.

Stupid, stupid, people

The question for today: are we actually ruled by fools?

Half a million households in flood-prone neighbourhoods will see annual insurance bills rise by up to one third, even after they have been subsidised by policyholders across the country. Ministers have reached a new deal with insurance firms they claim will protect hundreds of thousands of people whose homes are at risk of severe water damage, and who struggle to afford insurance on the open market. When the new scheme was first announced in June, householders were promised that there would be no increase in bills in general. But an analysis of the new plan, conducted by government officials and independent experts, has found that every home insurance policy holder in Britain faces increased bills.

Yes, it appears that we are ruled by fools.

There is no sensible argument that supports the idea that I, living one hundred metres above the flood plain, should subsidise the flood insurance of someone dim enough to live actually on the flood plain. Their tootsies are going to get wet every few years, mine are not. This is because they have decided to live where there is a risk of flooding and I have decided to live where there is not.

We want insurance costs to act as an incentive. Young drivers pay more in insurance that those mature in years like myself: those young drivers are more likely to have an accident and cost the insurers money. Convicted arsonists are quite likely charged more for their fire insurance: we want people at higher risk of flooding to pay higher premiums for flood insurance. Mainly to stop people being so damn stupid as to build houses where there is a high risk of flooding.

What is it about this extremely simple idea that seems to have beeen missed by those who claim the right to dispose of 50% of everything that the country collectively produces? And perhaps more to hte point why do we allow them to take 50% of everything when they're quite clearly off their collective rocker?

This is about where we tell the government to *!$% off isn't it? Right off?

All will know that I am a very peaceful, calm and contented sort of chap. So it is with a certain sense of betraying that peaceful persona that I now need to tell you that I've entirely blown my top. It's not that the specific design of mobile phones that we are allowed to purchase or not legally is all that much of a concern to liberty and freedom. Rather, it's the entirely insufferable assumptions behind this mooted ban on certain models:

UK officials are considering banning the sale of small mobile phones designed to resemble car key fobs. A government spokesman told the BBC that it was discussing the issue with the National Trading Standards Board and the Serious Organised Crime Agency. In the meantime the NTSB has asked retailers to stop selling the products.

It is an offence to have a mobile phone in a prison. So yes, I can understand that the prison authorities aren't all that happy with the idea that easily concealable mobile phones are available out here in the free world for they might be so concealed and thus smuggled into the prisons where to have one is an offence. But that is where it should end: with the prison authorities being unhappy that they've now got to check people more intensively (and invasively) to ensure that these phones are not so smuggled. Even the thought that we should all be denied a fun little trinket because the prison authorities cannot stop smuggling is an outrage. An outrage that certainly I think that people should be fired for having even dared utter.

For this is entirely the point of this whole prison thing: it's not just that they inside them are not free it's that we outside them are indeed free. Free and at liberty to purchase any damn fool model of mobile phone, gadetry or tchotchke that our little hearts might desire. And it's most certainly not the job of those policing that dividing line between free and unfree to deprive us on the outside of our freedoms in order to make their lives easier.

I'm sure it's an offence to be out of your cell after locking up time too: but we've not got the bureaucrats roaming the country insisting that all of us go to bed at 9 pm do we? We are not denied cake because files can be hidden in it.

This attempt should be greeted with a very British flick of two fingers at whichever and whatever employee of the State you happen to meet next.

The only saving grace is that these fools are still ignorant of the Streisand Effect. The tech publications and boards are full of people who have only just found out about these mobiles and are buying them by the bucketful. And by morning there won't be a family member or associate of a prisoner who also doesn't know about them.

Quite the best story about tax ever

A quite delightful little story about tax and taxation. You might recall that a while back an IT contractor stole the list of banks account owners from a Swiss bank. And then sold it to the German government who used it to chase those naughty tax avoiders for the money they had avoided/evaded.

We might call this a victory for law and order or we might call this part of it such a victory. For the Swiss have now jailed the man for three years because what he did was indeed theft.

But the part that makes this such a wonderful story is this:

The 54-year-old German-born man appearing before the Swiss criminal court in a striped polo shirt and jeans, said that he had intended to use the bulk of a 1.1 million euro ($1.47 million) reward to pay off taxes he owed in Germany.

At which point I think we can all agree that tax rates in Germany are much too high. For look what happens: people are driven to theft just to be able to pay those taxes.

Update: I'm told by a trustde source that the reason he owes the tax is because he was on the list that he himself handed over. Which is really icing on it, isn't it?

Have we deregulated or not?

Louis Zingales celebrates the economic growth that came from the deregulation of the American economy:

The battle for deregulation has achieved many of its main objectives. Deregulation was a cry of freedom that most Americans supported back when Chicago banks couldn’t open branches in southern Illinois—let alone in other states; when a truck had to obtain a permit to transport merchandise across state borders; and when a government agency decided the prices of commercial flights.

The thing is, I'm not entirely certain that we really have deregulated the economy. We've certainly deregulated part of it, both here and over The Pond. But at the same time we've introduced much heavier regulation in other parts of the economy.

My favourite and oft used example of this is the taxi hailing part of the Uber app for smartphones. It really is just an electronic method of hailing a cab: and it is taking them 12 to 18 months to introduce it into each US city they want to serve. The extant taxis are well protected by the various taxi commissions. And I've had a recent grumble here about environmental regulation of new manufacturing making much the same point. Or another little piece of personal experience: Germany, from Jan 1 this year, now regulates the clearing up of old mine and slag piles to the same standards as the opening of new mines. Tidying up a few thousand tonnes of rock lying in a field now faces the same bureaucracy as blasting a shaft to extract millions of tonnes. One more example: it's generally accepted that no one will ever build a new copper smelter in the US. The regulations surrounding doing so are so strict that it would never be economic: regulations that the extant plants are grandfathered into.

My impression is that we have deregulated some things: largely, industries that are or were already extant. But we've increased regulation in the area of trying to do new things. Starting a business these days faces, I am sure, more regulation than in the past. And the problem with this is that while doing extant things better is a nice boost to the standard of living the real long term growth in the economy comes from doing entirely new things. Something which itself really comes from new entrants into the marketplace rather than extant companies changing their ways.

So while we have indeed deregulated and privatised and made the world a bettrer and richer place I'm not entirely sure that we've done enough. For at the same time as we were doing that we've also been regulating new activity more heavily. Which for the long term health of the economy and living standards might not be all that wise an idea.

The real reason we like immigration so much

Martha Gill has a good piece on immigration on the Telegraph Blogs site today, pointing out the simple fact that people often forget: the main reason immigration is such a good thing is that it's really, really good for immigrants.

Sure, immigrants make the rich countries they arrive at richer and subsidise those countries' welfare states, but people in rich countries have a lot already. It's people coming from places like Somalia and Sierra Leone that have the most to gain from being able to work in the UK.

Michael Clemens's study, "Trillion dollar bills on the sidewalk", looks at estimates of the global GDP gains that would come from open borders. The gains range between 67% and 122%, depending on how many people actually migrated. Those benefits would overwhelmingly accrue to the world's poorest people, and that's a good thing.

Gill's piece is directed at the left, which is fair enough given that most defenders of immigration are on the left. But no side owns cosmopolitanism. Almost everyone has heard the slogan "trade, not aid" from people on the political right. They (correctly) see international trade as a much better way to improve the lives of people in poor countries than development aid. They want free trade because it works for poor people around the world, not just because it would also happen to make us a little bit richer.

It doesn't seem out of the question that the same kind of altruism might eventually spread to the right's view of immigration. That might seem unlikely, but the political right was once a bastion of protectionism, and that changed.

Fundamentally, immigration restrictions are laws that ban firms from employing certain people and landlords from renting or selling their property to certain people. What's right-wing about that?

Facepalm

It worries me sometimes, the things people say:

You know that domestic oil-and-gas boom that’s been sweeping the country for the past few years, turning places like Williston, N.D., into Sin City? Well, the party’s winding down — or maybe it was never that ragin’ in the first place. Oil and gas shale assets, possibly overvalued to begin with, are plunging in price thanks to an oversaturated market and wells whose production hasn’t always lived up to expectations.

The first and most obvious contradiction here is how we can have an oversaturated market and also production that hasn't lived up to expectations. One rather precludes the other really.

But a much greater worry is that they're assuming that a falling price for oil and gas assets is a bad thing. When of course the reality is entirely the opposite: it's just absolutely great. An oversupplied market leading to falling prices for the productive assets means that, well, it means that the market is being oversupplied. Which in turn must mean that consumers are getting their fuel more cheaply: very much the point of the exercise, that we can make things cheaper for consumers.

It's also true that if our new technology, applied to these new assets, led to a rise in the price of those assets then we thought that we would need lots of those assets to apply the technology to. A falling price shows that we now realise that we need fewer assets to supply market demand. That is, that fracking is even more successful and wondrous than we at first thought. Which really isn't a sign that the party's over. Rather, given that consumer welfare is our concern, it's a sign that it's only going to get better.